Have I missed something?

Lorfy

I was chatting with the wife today about our future, especially as we really do not have any solid future financial retirement plans and thought about the below situation and it seems a viable plan but have i missed something obvious?

Our flat is currently worth £235,000 and we have about £114,000 mortgage left to pay, we are 38. I'm currently over paying by £250 per month and the mortgage is £550 per month.

From local research i know the flat can rent for about £975 per month and in the 7 years i've been in the area i have never seen another flat vacant.

We are thinking of buying another property 2 bed for about £275,000 which would have to be another mortgage, however the potential of the £950 on our current flat would go a long way to paying off the new flat and reducing the mortgage which would aim to have one property for retirement and another to sell.

So in theory it seems quite straight forward but:

What is the situation with the mortgages, would i have to move one to a buy to let mortgage or can i get a second mortgage?

We are on about a combined house hold wage of about £66,000.

Any advice or thoughts would be greatly appreciated.

Thanks

Lorfy

dimbo61

One or two minor problems !
Have you got a deposit for the new property ?
The £950/975 will be needed to pay the £114,000 mortgage you already have on your flat. Landlord insurance, gas safe check, repairs, Letting Agents fees, adverts, etc
£10,000 stamp duty plus buying costs, remortgage costs onto a BTL !
Lenders have new rules which come into force on the 26th of April.
Affordability !!!!!

Yorkie1

Your present mortgage will be a residential so you either have to ask your present lender for consent to let, which if granted may have higher interest rates and is likely to be only for a fixed period of time; or go onto a buy to let mortgage. Therefore you can't rely on the repayments remaining what they are at present.

Twiggy_34

Everything dimbo61 says is valid, but its certainly worth contacting your existing mortgage provider to enquire about transferring it to a BTL. Not all providers will do this, and even then it will depend on the circumstances, but I know my sister did this for a small one off fee when she decided to rent out her flat after moving in with her partner.

You definitely need to ensure you have sufficient funds to deal with unexpected circumstances at the BTL flat. We rent out our late dad's house which has been in the family for over 20 years. Despite working our socks off to get it into rent-able condition (re-wiring, smoke detectors, redecorating and carpeting throughout) we had a bunch of stuff go wrong and we're only just approaching 11 months of rental income. Of the £4k plus we've each earned (and have to pay income tax on, as you will probably have to) we've actually had less than £2k each to put in our pockets. That's after the fee's of getting the property ready, landlord insurance, annual gas check, and then add on top of this the unexpected roof repairs we had to pay for last month (and some extra maintenance we chose to get done while the scaffolding was up).

Back to the note about income tax - I believe you can offset the mortgage interest against this, but as our rental property isn't mortgaged I'm not actually certain of the finer details.

Additional thought: You also need to look at your current flat with a very critical eye. Remember, there might be things that aren't quite right or perfect about some things which you're more than happy to put up with as the home owner, but tenants paying a large sum of money to live there will most likely have higher standards and expectations from their money.

Lorfy

Thank you very much all for the invaluable feedback and some good points to consider.

If possible could someone just expand on off setting the tax against the mortgage interest.

For example lets say we make an annual profit of £6,0000. The annual mortgage interest rate is £2,5000 does this mean (not including other taxable items for this exercise) we would just be taxed on £3,500?

Many thanks

Lorfy

getmore4less

5% gross yield, net will be lower after costs.

May not be enough to make this worth while if the borrowing rates go up.

rachael125

I had 2 mortgages and the way i did it was ring the lender who my flat (which i just sold) was with and tell them ive just seen a house im interested in.

They done the checks and i don't have any debt so my only consideration was the mortgage on the flat. They asked what my plans were to which i said sell and they said fair enough asked if it was for sale which it was.

Without the flat i got offered about 15k more then I did (mortgage was £30k). It took about 8 month for me to sell the flat and the mortgage company didn't contact me or pester me once to see how things were regarding the sale. Was alot easier then expected and worked out great.

Thrugelmir

Does your flat lease permit letting ?

dimbo61

Again one for a mortgage broker really.
You are setting up a business and need to get it right first time.
If you have more then 25% equity in the flat you maybe able to get a BTL 75% mortgage and use the extra money as a good deposit on your new home.
Income, age , business plan, property and location, local rental market.
Are all important so speak to an estate agent or letting agent.